Can any of the company-specific risk be diversified away by investing in both Bloom Energy and FuelCell Energy at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Bloom Energy and FuelCell Energy into the same portfolio, which is an essential part of the fundamental portfolio management process.
By analyzing existing cross correlation between Bloom Energy Corp and FuelCell Energy, you can compare the effects of market volatilities on Bloom Energy and FuelCell Energy and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Bloom Energy with a short position of FuelCell Energy. Check out your portfolio center. Please also check ongoing floating volatility patterns of Bloom Energy and FuelCell Energy.
Diversification Opportunities for Bloom Energy and FuelCell Energy
The 3 months correlation between Bloom and FuelCell is 0.68. Overlapping area represents the amount of risk that can be diversified away by holding Bloom Energy Corp and FuelCell Energy in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on FuelCell Energy and Bloom Energy is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Bloom Energy Corp are associated (or correlated) with FuelCell Energy. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of FuelCell Energy has no effect on the direction of Bloom Energy i.e., Bloom Energy and FuelCell Energy go up and down completely randomly.
Pair Corralation between Bloom Energy and FuelCell Energy
Allowing for the 90-day total investment horizon Bloom Energy Corp is expected to generate 0.81 times more return on investment than FuelCell Energy. However, Bloom Energy Corp is 1.23 times less risky than FuelCell Energy. It trades about 0.1 of its potential returns per unit of risk. FuelCell Energy is currently generating about 0.03 per unit of risk. If you would invest 1,219 in Bloom Energy Corp on September 2, 2023 and sell it today you would earn a total of 225.00 from holding Bloom Energy Corp or generate 18.46% return on investment over 90 days.
Over the last 90 days Bloom Energy Corp has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of rather sound technical and fundamental indicators, Bloom Energy is not utilizing all of its potentials. The current stock price tumult, may contribute to shorter-term losses for the shareholders.
Over the last 90 days FuelCell Energy has generated negative risk-adjusted returns adding no value to investors with long positions. Despite latest weak performance, the Stock's technical and fundamental indicators remain persistent and the latest mess on Wall Street may also be a sign of long-standing gains for the company institutional investors.
Bloom Energy and FuelCell Energy Volatility Contrast
Predicted Return Density
Pair Trading with Bloom Energy and FuelCell Energy
The main advantage of trading using opposite Bloom Energy and FuelCell Energy positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Bloom Energy position performs unexpectedly, FuelCell Energy can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in FuelCell Energy will offset losses from the drop in FuelCell Energy's long position.
The idea behind Bloom Energy Corp and FuelCell Energy pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.
Check out your portfolio center.Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Portfolio Suggestion module to get suggestions outside of your existing asset allocation including your own model portfolios.
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